Abacus | Hong Kong is about to trigger a global financial crisis ... Really?
The HK dollar is at a three-decade low and armageddon is approaching. That is, if you believe recent headlines. But before you hyperventilate, listen to this
Hong Kong’s foreign exchange market, usually the least interesting financial market in the world, has been making headlines recently.
You’ll be glad to know you can breathe easy. The worst that is likely to happen over the coming months in Hong Kong’s foreign exchange and money markets is not a financial crisis of earth-shattering proportions, but rather a normalisation of conditions from a highly anomalous state. First, let’s consider that fall in the Hong Kong dollar. It hasn’t really “plummeted” and isn’t really at a three-decade low. Against a basket of major currencies adjusted for inflation, the Hong Kong dollar has actually strengthened by 34 per cent since 2011.
Instead, what has caught people’s eye is a marginal depreciation – by 1 per cent since the beginning of last year – in the Hong Kong dollar against its US counterpart.
That’s pushed the Hong Kong currency towards the weak side of its permitted trading band against the US dollar – although it hasn’t got there yet.